# Petition for Writ of Certiorari — Ballard v. Martin

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2003
- **Citation:** 537 U.S. 1105

## Text

Supreme
1) FILED C

O2 542 0CT -3 2002

OFFICE OF THE CLERK

IN THE
Supreme Court of the Gnited States

TERESA BALLARD, ET AL.,
Petitioners,

Vv.

SHEILA MARTIN AND WESTARK FINANCIAL CONSULTANTS OF
JONESBORO, INC., ET AL.
Respondents.

ON PETITION FOR WRIT OF CERTIORARI
TO THE SUPREME COURT OF THE
STATE OF ARKANSAS

PETITION FOR WRIT OF CERTIORARI

RICHARD A. FISHER DAVID G. NIXON
Counsel of Record

THE FISHER LAW FIRM THE NIXON LAW FIRM
1510 STUART ROAD 2340 GREEN ACRES RD.
SUITE 210 SUITE 12

CLEVELAND, TN 37364 FAYETTEVILLE, AR 72703
TEL: (423) 479-7009 TEL: (479) 582-0020

Counsel for Petitioners

$$$ e—Eeeeeeeeeeeee—

QUESTIONS PRESENTED

Does due process require the adoption and use of
objective standards to gauge whether a trial court abused its
discretion in approving a proposed class action settlement
agreement?

cashes

PARTIES TO THE PROCEEDING

Petitioners

Petitioners are Teresa Ballard, Kenisha Bryant, Richard
Lynn and Cheryl King, individual citizens of the United
States. Ms. Ballard and Ms. King reside in the State of
Arkansas and Ms. Bryant resided there at the time this
litigation commenced. The Petitioners have no corporate
affiliations. The Petitioners were objecting class members in
the Circuit Court of Craighead County, Arkansas and the
Appellants before the Arkansas Supreme Court.

Respondents

Sheila Martin and Jimmie Lou Spencer are individual
citizens of the United States, residing in the State of
Arkansas. Ms. Martin and Ms. Spencer were the designated
class representatives in the Circuit Court of Craighead
County, Arkansas and Appellees before the Arkansas
Supreme Court.

Westark Financial Consultants of Jonesboro, Inc.,
Westark Financial Consultants of Little Rock, Inc., Westark
Financial Consultants of North Little Rock, Inc.; Westark
Financial Consultants of Jacksonville, Inc.; Westark Financial
Consultants of Pine Bluff, Inc.; Westark Financial
Consultants of Rogers, Inc.; Westark Financial Consultants
of Springdale, Inc.; Westark Financial Consultants of
Russellville, Inc.; Westark Financial Consultants of
Fayetteville, Inc.; Westark Financial Consultants, Inc.; Cash
Advance of Benton, Inc.; Cash Advance of North Little Rock,
Inc.; Cash Advance of Little Rock, Inc.; Executive Cash
Advance of Little Rock, Inc.; C & B Enterprises, Inc., H&S
Enterprises of Rogers, Inc.; H&S Enterprises of Fayetteville,
Inc.; H&S Enterprises of Springdale, Inc.; and Payday
Advance of Fort Smith, Inc. (collectively, “Westark”) are all
Arkansas corporations. Westark was the defendant in the

Circuit Court of Craighead County, Arkansas and an
appellee before the Arkansas Supreme Court.

ill

TABLE OF CONTENTS
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STATEMENT OF JURESDIC TION .....s.c-cccsscvosescrcsssessensovsneenesensees 1
CONSTITUTIONAL AND STATUTORY PROVISIONS
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REASONS FOR GRANTING THE PETITION... eee 9 |
I. The Question Presented is Important. ...........:ceeeeee 9
A. The Arkansas Supreme Court's Decision Results in |
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1. Due Process Requires the Use of Objective
3 Standards Against Which to Measure and Limit a
CRIES I ci vnhecrertincwuiencciinnivinjesorateinartcnnsioinctes 9
2. The Arkansas Supreme Court Improperly Shifted
the Burden of Proof to Objecting Class Members. .16
RE i Re assthieivninrcstrcthadieesitesateenseebtnscseuighacatnness 18
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II. This Court Has Never Spoken on this Issue and
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TABLE OF AUTHORITIES

Federal Cases

Amchem Products, Inc. v. Windsor, 521 U.S. 591,
REF ee AE CUP OTD ciniissinn: hcipcicinasialanciliaieiicinnoeda wine 1, 22

Brinkerhoff-Faris Trust & Savings Co. v. Hill, 281
U.S. 673, 50 S.Ct. 451 (Mem), 74 L.Ed. 1107

SI ner. naisesshaneseomesinieldesinitaidanbiaeasainde bliss cumaiceia tina daccas 13
-Chicago, B. & Q.R. Co. v. City of Chicago, 166 U.S.

226, 17 S.Ct. 581, 41 L.Ed. 979 (1897) ........cscssccsssessessssessesees 13
Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 94

S.Ct. 2140, 40 L.Ed.2d 732 (1974).....ccsssssssssssssssssssssesscsecssee 20
Gideon v. Wainwright, 372 U.S. 335, 83 S. Ct. 792,

9 L.Ed.2d 799, 93 A.LR.2D 733 (1963).......s.ssssssscssessssessesees 13
Girsh v. Jepson, 521 F.2d 153 (3rd Cir. 1975)......cccscscsesseeeees 18, 21
Grunin v. Int'l House of Pancakes, 513 F.2d 114

GO te: BO censeiessactinnbaeoitalsimenictisenianedbammnancoue: 9,10, 14, 15

In re General Motors Corp. Pick-Up Truck Fuel
Tank Products Liability Litigation, 55 F.3d 768

GS BPM vivisvecinicerincicen nian ssaniictinsilbinedeacansinaiiaisae 8, 13
In re Milken & Assoc. Securities Litigation, 150
FAP. Gb GAIL, Bo aap vsvnssctitteeniaieiistnbitinesssustaaniaanbvshesonedisa 15

Lassiter v. Department of Social Services of Durham
County, 452 U.S. 18, 101 S.Ct. 2153, 68 L.Ed.2d

| | RNa RE RET EMRE SSN hele DRT AEE 14
Mullane v. Central Hanover Bank & Trust Co., 339

U.S. 306, 70 S.Ct. 652, 94 L.Ed. 865 RITE conti omadesbiaet: 20
Orr v. Orr, 440 U.S. 268, 99 S.Ct. 1102, 59

Se GP EEO uitisinientiiesiginseuaseaieinds maleic ae: 13
Ortiz v. Fibreboard Corp., 527 U.S. 815, 119 S.Ct.

2299, 144 L.Ed 2d 715 (1999) ......c.cececesvonesesesesssessesvcesesoece 16, 18

Vv

Protective Committee For Independent Stockholders
of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S.

SAG BS Aes SARE Ce rieicerrtinvinnsisnnsiniminnniteinala
Richardson v. Ramirez, 418 U.S. 24, 94 S.Ct. 2655,

Fe i Ee IO vikninininiceieeiinaniiosuiinnahlibeasinitpinaiiieinnliaes 13
Smith v. Swormstedt, 57 U.S. 288, 16 How. 288,

Se ps Fe OED einasenrininneeseatsinieennitaiinenanipaiemiinilil 11
Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356,

Go ey Gere Pe LEE Bercapvishtniisnnncebapeatniiersnnniaiasaneaninnanth 11
Twigg v. Sears, Roebuck & Co., 153 F.3d 1222

CUE els, PIE iicnstiabreseeneuianianvennneieudannminanaimmaasba 22

State Cases
‘Ballard v. Martin, 349 Ark. 564, 79 S.W.3d 838

(2002)....sosveresvscssvssvansessennssssvonvseonvesseonessreosnones Racaneetohines 15, 19, 21
Ford Motor Credit Co. v. Rogers, 285 Ark. 64, 685

CAFU Ae BRD CIGD nnncrvecnnisisenercovitninnestanttieiniabesnselbieticatiannivniaeda 8
Fraley v. Williams Ford Tractor and Equipment

Company, 339 Ark. 322, 5 S.W.3d 423 (1999) ......cscseeseeseseees 9
Kemp-Bradford VFW Post 4764 v. Wood, 262 Ark.

BR Soe ROU SOO CET P escersesismnnuneinonionieiermeniiaeenianiinlion 8
Federal Statutes
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Cs Bi CUE, PARIOINE FEY sesesinscesevinninesnioesnesveninaninintiastagenneniie 2, 13
State Statutes .
Fe Ri AANE, Bs Oe Et cctv incttnriccitcticianeelnaieaebaiiialiadeeeiniana 2
State Rules
PTB. Fe 4M. F, Tdeonsvinnvcensnieeipvameansaiiieceehacapiaaiiilanaaigiliaadaan 3

vi

Petitioners respectfully petition for a Writ of Certiorari to
review the judgment of the Arkansas Supreme Court in this
case.

OPINIONS BELOW

The original opinion of the Arkansas Supreme Court
(App. A at 1a) is reported at 349 Ark. 564, 79 S.W.3d 838
(2002). The opinion of the Circuit Court of Craighead
County, Arkansas approving the proposed Settlement
Agreement over the objection of the Petitioners (App. B at
23a) is not reported.

STATEMENT OF JURISDICTION

The judgment of the Arkansas Supreme Court was
entered July 5, 2002.

The jurisdiction of this court is invoked pursuant to 28
U.S.C. § 1257(a).

CONSTITUTIONAL AND STATUTORY
PROVISIONS INVOLVED

This case involves the following statutory provisions:
1. U.S. Const., Amend. V.

No person shall be held to answer for a capital, or
otherwise infamous crime, unless on a presentment
or indictment of a Grand Jury, except in cases arising -
in the land or naval forces, or in the Militia, when in
actual service in time of War or public danger; nor
shall any person be subject for the same offence to be
twice put in jeopardy of life or limb; nor shall be
compelled in any criminal case to be a witness
against himself, nor be deprived of life, liberty, or
property, without due process of law; nor shall

private property be taken for public use, without just
compensation.

U.S. Const., Amend. XIV, Section 1.

All persons born or naturalized in the United
States, and subject to the jurisdiction thereof, are
citizens of the United States and of the State wherein
they reside. No State shall make or enforce any law
which shall abridge the privileges or immunities of
citizens of the United States; nor shall any State
deprive any person of life, liberty, or property,
without due process of law; nor deny to any person
within its jurisdiction the equal protection of the
laws.

Ark. Const., Art. 19, § 13.
§ 13 Maximum lawful rates of interest.
(a) General Loans:

(i) The maximum lawful rate of interest on any
contract entered into after the effective date hereof
shall not exceed five percent (5%) per annum above
the Federal Reserve Discount Rate at the time of the
contract.

(ii) All such contracts having a rate of interest in
excess of the maximum lawful rate shall be void as to
the unpaid interest. A person who has paid interest
in excess of the maximum lawful rate may recover,
within the time provided by law, twice the amount of
interest paid. It is unlawful for any person to
knowingly charge a rate of interest in excess of the
maximum lawful rate in effect at the time of the
contract, and any person who does so shall be subject
. to such punishment as may be provided by law.

(b) Consumer Loans and Credit Sales: All contracts for
consumer loans and credit sales having a greater rate of
interest than seventeen percent (17%) per annum shall be
void as to principal and interest and the General
Assembly shall prohibit the same by law.

(c) Definitions: As used herein, the term:

(i) "Consumer Loans and Credit Sales" means
credit extended to a natural person in which the
money, property, or service which is the subject of
the transaction is primarily for personal, family or
household purposes.

(ii) "Federal Reserve Discount Rate" means the
Federal Reserve Discount Rate on ninety-day
commercial paper in effect in the Federal Reserve
Bank in the Federal Reserve District in which
Arkansas is located.

(d) Miscellaneous:

(i) The rate of interest for contracts in which no
rate of interest is agreed upon shall be six percent
(6%) per annum.

(ii) The provisions hereof are not intended and
shall not be deemed to supersede or otherwise
invalidate ary provisions of federal law applicable to
loans or interest rates including loans secured by
residential real property.

(iii) The provisions hereof revoke all provisions of
State law which establish the maximum rate of
interest chargeable in the State or which are
otherwise inconsistent herewith.

4. Ark. R. Civ. P. 23.
RULE 23. CLASS ACTIONS

(a) Prerequisites to Class Action. One or more members
of a class may sue or be sued as representative parties on
behalf of all only if (1) the class is so numerous that
joinder of all members is impracticable, (2) there are
questions of law or fact common to the class, (3) the
claims or defenses of the representative parties are
typical of the claims or defenses of the class, and (4) the
representative parties will fairly and adequately protect
: the interests of the class.

(b) Class Actions Maintainable. An action may be

maintained as a class action if the prerequisites of

subdivision (a) are satisfied, and the court finds that the |
questions of law or fact common to the members of the |
class predorninate over any questions affecting only
individual members, and that a class action is superior to |
other available methods for the fair and efficient
adjudication of the controversy. As soon as practicable
after the commencement of an action brought as a class
action, the court shall determine by order whether it is to
be so maintained. An order under this~section may be
conditional and it may be altered or amended before the
decision on the merits.

(c) Notice. In any class action in which monetary relief is
sought, including actions for damages and restitution,
the court shall direct to the members of the class the best
notice practicable under the circumstances, including
individual notice to all members who can be identified
through reasonable effort. The notice shall: (1) describe |
the action and the members' rights in it; (2) advise each t
member that the court will exclude the member from the
class if the rnember so requests by a specified date; (3)
advise each member that the judgment, whether
favorable or not, will include all members who do not
request exclusion; and (4) state that any member who

LOSE Se aa ee

does not request exclusion may, if the member desires,
participate in the litigation, either in person or through
counsel. The cost of such notice shall be borne by the
representative parties; provided, however, that the court
may shift all or part of such cost to the opposing party or
parties if the case is settled or the class representative
substantially prevails on the merits.

(d) Orders in Conduct of Actions. In the conduct of
actions to which this rule applies, the court may make
appropriate orders: (1) determining the course of
proceedings or prescribing measures to prevent undue
repetition or complication in the presentation of
evidence or argument; (2) requiring, for the protection of
the members of the class or otherwise for the fair
conduct of the action, that notice be given in such
manner as the court may direct to some or all of the
members of any step in the action, or of the proposed
extent of the judgment, or of the opportunity of the
members to signify whether they consider the
representation fair and adequate, to intervene and
present claims or defenses, or otherwise come into the
action; (3) imposing conditions on the representative
parties or on intervenors; (4) requiring that the pleadings
be amended to eliminate therefrom allegations as to
representation of absent persons, and that the action
proceed accordingly; and (5) dealing with similar
procedural raatters. The orders may be combined with
an order under Rule 16 and may be altered or amended
from time to time as may be desirable.

(e) Dismissa] or Compromise. A class action shall not be
dismissed or compromised without the approval of the
court. In cases where the court has entered an order that
an action shall be maintained as a class action, notice of
such proposed dismissal or compromise shall be given to
all members of the class in such manner as the court
directs.

STATEMENT OF THE CASE

This appeal arises from an order of the Circuit Court for
Craighead County, Arkansas, the Hon. David N. Laser,
approving, over Petitioners’ objection, a proposed class
action Settlement Agreement. (App. B at 23a.)

The case began on December 8, 2000 as a suit by
Ms. Martin and Ms. Spencer (collectively, the “Plaintiffs”)
against Westark Financial Consultants of Jonesboro, Inc. for
usury in the practice of payday lending. On April 26, 2001,
all of the other corporate defendants were added as
defendants (collectively referred to herein as “Westark”).
On April 27, 2001, the Plaintiffs and Westark submitted their
“Joint Motion to Certify Class, Approve Settlement of Class
Action, Direct Notice of Pendency and Settlement, and Set
Date for Hearing on Final Approval of Settlement of Class
Action.” (App. D at 34a.) Attached to the Joint Motion as
Exhibits were the Settlement Agreement (App. D at 39a), the
Notice to class members of certification and settlement (App.
D at 45a), and the Claim Form to be used by class members
(App. D at 55a). The proposed Settlement Agreement settled
all claims that were brought or could have been brought
against Westark, its owners and sureties in exchange for a
payment of $170.000.00 in class counsel fees and $435,000.00
used to purchase “Series E” U. S. Savings Bonds. Westark
would continue in business for 90 days after approval of the
settlement and would continue to collect on checks
thereafter if a payment plan was in effect as to that check.

On April 30, 2001, the trial court certified the case as a
class action, and ordered that simultaneous notice of
certification and settlement be given by U. S. Standard Mail
on or before May 14, 2001. The Petitioners timely objected to
the proposed Settlement Agreement as being inadequate,
unreasonable, and unjust. An evidentiary hearing was held
in the trial court on June 1, 2001. At that hearing, Ms. Martin
testified in support of the fairness of the Settlement
Agreement and the Plaintiffs rested. Westark offered no
evidence in support of the Settlement Agreement.

ee

Petitioners called Westark’s chief financial officer as a
witness pursuant to a subpoena and elicited evidence
regarding the financial condition of Westark, _ its
shareholders and sureties. That evidence showed that:
Westark’s only substantial activity was payday lending; that
Westark had a combined net worth of approximately $ 2.7
million; that Westark would collect approximately $ 1.4
million: during the 90-day post-approval period; that
Westark’s shareholders had taken some $ 3-5 million in
profits out of the corporations during their existence; and
that Westark had surety bonds totaling $ 1.95 million to
cover, inter alia, violations of “any other applicable laws of
the State [sic] Arkansas.”

Petitioners argued that the amount offered to the class
was inadequate and unfair and that the owners and sureties
should not be reieased from potential liability without some
contribution on their part to the settlement fund. In
addition, Petitioners objected to the Notice’s less-than-two-
week timing and its content.

On August 7, 2001, the trial court approved the
Settlement Agreement. On August 28, 2001, the Petitioners
timely appealed-that order. On July 5, 2002, the Arkansas
Supreme Court upheld the decision of the trial court. The
Arkansas Supreme Court was asked to adopt - for the first
time - standards by which to judge proposed class action
settlements. Petitioners allege the Arkansas Supreme Court
nominally adopted such standards, but has substantively
ignored them, resulting in a denial of due process in this
particular case and the promise of continued denials of due
process in the procedural vacuum inherent in its decision.

The Petitioners raised the federal question of due
regarding the standards applicable to review of proposed
class action settlement agreements and Notices as indicated
below:

When determining whether a proposed settlement
agreement should be approved, the burden is on the

proponents of the agreement to show that it is fair,
reasonable, and adequate. In re General Motors Corp.
Pick-Up Truck Fuel Tank Products Liability Litigation, 55
F.3d 768 (3rd Cir. 1995). The burden is not on the
objectors to prove it is unacceptable. This makes
sense since it is the proponents who allegedly possess
all of the facts underlying the negotiations and who
stand to benefit from the agreement. Moreover, since
the proposed settlement is intended to have res
judicata effect as to the absent class members and
class counsel bears a duty toward the class, it is only
right that class counsel be called upon to demonstrate
that the proposed settlement was the subject of
vigorous and independent negotiation on behalf of
the class. Due process requires nothing less. This
Court has previously held that due _ process
considerations are relevant in the class action context.
See, e.g., Kemp-Bradford VFW Post 4764 v. Wood, 262
Ark. 168, 554 S.W.2d 344 (1977) (“We do not believe
the rights of the members of any class, whether
alcoholic beverages are involved or not, should ever
be determined without reasonable notice or without
evidence that parties are adequately representative of
the class.”); Ford Motor Credit Co. v. Rogers, 285 Ark.
64, 685 S.W.2d 145 (1985).”

-.2 <>

Ballard Appellants’ Opening Brief. See Ballard, et al., v. Martin,
et al., SC 01-1185 (Ark.). (Emphasis added.)

4. That the Official Notice from the Court and the
Notice and Summary from the parties contain no
reference whatsoever that: (1) a class member may
object at all; (2) “the manner by which a notice of
objection should be prepared, filed and delivered;” or )
(3) the manner and time at which objections to the
proposed Settlement Agreement shall be heard.

5. That Kenisha Bryant, Cheryl King, Richard Lynn
and Crystal Luebbers object to approval of the
proposed Settlement Agreement on the grounds,

inter alia, it is woefully inadequate, unfair and unjust
to the class members.”

Objection of Proposed Intervenors, Teresa Ballard, et al., to
Proposed Settlement Agreement, CIV 2000-669(L) (Craighead
Co., Ark.).

REASONS FOR GRANTING THE PETITION
I. The Question Presented is Important.

A. The Arkansas Supreme Court’s Decision Results in
a Denial of Due Process.

Prior to this decision by the Arkansas Supreme Court,
there were no enunciated opinions in Arkansas to guide
litigants and trial courts in evaluating proposed class action
settlement agreements. In line with its stated policy to
follow federal law in the area of class action practice (Fraley
v. Williams Ford Tractor and Equipment Company, 339 Ark. 322,
336, 5 S.W.3d 423, 432 (1999)), the court was asked to adopt
Grunin v. Int’l House of Pancakes, 513 F.2d 114 (8% Cir. 1975)
as the law of Arkansas in this area.

The Arkansas Supreme Court, in a published opinion,
did nominally adopt Grunin, id. as controlling, but
proceeded to misinterpret and misapply it, resulting in a
denial of due process. The future “ripple effect” of this error
will deny other objecting class members due process if it is
not corrected at the outset.

1. Due Process Requires the Use of Objective
Standards Against Which to Measure and Limit
a Court’s Discretion.

Petitioners believe the review standards set forth in
Grunin and other similar cases from other federal circuits
have as their base the due process clause of the Fifth

Amendment. At the core of this consideration is the due
process concern that judicial proceedings to which one is not
a party are not generally binding on that person, unless the
named party adequately represents the interests of that
absent person. This general rule and the exception for
representative actions have deep roots in our system of
justice.

With a proper regard for divergent local
institutions and interests, cf. Jackson County v. United ;
States, 308 U.S. 343, 351, 60 S.Ct. 285, 288, 84 L.Ed. |
313, this Court is justified in saying that there has
been a failure of due process only in those cases
where it cannot be said that the procedure adopted,
fairly insures the protection of the interests of absent
parties who are to be bound by it. Chicago, B. & Q.R.
Co. v. Chicago, 166 U.S. 226, 235, 17 S.Ct. 581, 584, 41
L.Ed. 979

Hansberry v. Lee, 311 U.S. 32, 42, 61 S.Ct. 115, 118, 85 L.Ed. 22,
132 A.L.R. 741 (1940).

In all cases where exceptions to the general rule
are allowed, and a few are permitted to sue and
defend on behalf of the many, by representation, care
must be taken that persons are brought on the record
fairly representing the interest or right involved, so
that it may be fully and honestly tried.

Smith v. Swormstedt, 57 U.S. 288, 303, 16 How. 288, 14 L.Ed.
942 (1853). See also Supreme Tribe of Ben Hur v. Cauble, 255
U.S. 356, 41 S.Ct. 338, 341 (1921). —

Due process, therefore, requires adequate representation 4
of the absent class members’ interests. When the nominal
parties agree to settle, the court by necessity becomes the
representative of the absent parties in its fiduciary role on
their behalf.

10

aaa

The inquiry appropriate under Rule 23(e), on the
other hand, protects unnamed class members "from
unjust or unfair settlements affecting their rights
when the representatives become fainthearted before
the action is adjudicated or are able to secure
satisfaction of their individual claims by a
compromise." See 7B Wright, Miller, & Kane § 1797,
at 340-341.

Amchem Products, Inc. v. Windsor, 521 U.S. 591, 623, 117 SAX.
2231, 2249 (1997). This statement merely begs the question
of whether objective standards - or any standards at all - are
required under the due process clause. Petitioners submit
objective standards are needed in order to assure adequacy
of representation by the Court, as fiduciary, when the class
representative is advocating settlement. The absence of
objective standards makes exercise of that fiduciary duty
inherently arbitrary, which results in a denial of due process
to the absent class members.

This expanded role of the court in class actions
(relative to conventional bipolar litigation) continues
even after certification. While the parties in a normal
suit do not ordinarily require a judge's approval to
settle the action, class action parties do. Rule 23(e)
provides: "A class action shall not be dismissed or
compromised without the approval of the court, and
notice of the proposed dismissal or compromise shall
be given to all members of the class in such manner

_ as the court directs." Fed.R.Civ.P. 23(e). Courts and
commentators have interpreted this rule to require
courts to "independently and objectively analyze the
evidence and circumstances before it in order to
determine whether the settlement is in the best
interest of those whose claims will be extinguished."
2 Newberg & Conte § 11.41, at 11-88 to 11-89. "Under
Rule 23(e) the district court acts as a fiduciary who
must serve as a guardian of the rights of absent class

11

members.... [T]he court cannot accept a settlement
that the proponents have not shown to be fair,
reasonable and adequate." Grunin v. International
House of Pancakes, 513 F.2d 114, 123 (8th Cir.), cert.
denied, 423 U.S. 864, 96 S.Ct. 124, 46 L.Ed.2d 93 (1975);
Malchman v. Davis, 706 F.2d 426, 433 (2d Cir.1983);
Sala v. National RR Passenger Corp., 721 F.Supp. 80
(E.D.Pa.1989); see also Piambino v. Bailey, 610 F.2d
1306 (5th Cir.), cert. denied, 449 U.S. 1011, 101 S.Ct.
568, 66 L.Ed.2d 469 (1980).

In re General Motors Corporation Pick-Up Truck Fuel Tank
Products Liability Litigation, 55 F.3d 768, 785 (3rd Cir. 1995).

These principles apply to state court proceedings
through the Fourteenth Amendment. Brinkerhoff-Faris Trust
& Savings Co. v. Hill, 281 U.S. 673, 680, 50 S.Ct. 451, 454
(Mem), 74 L.Ed. 1107 (1930), Richardson v. Ramirez, 418 US.
24, 39-40, 94 S.Ct. 2655, 2664, 41 L.Ed.2d 551 (1974);
Hansberry v. Lee, supra, Gideon v. Wainwright, 372 U.S. 335, 83
S. Ct. 792, 9 L.Ed.2d 799, 93 A.LR.2D 733 (1963). The federal
constitutional issues of due process were timely raised by
the Petitioners and were ruled upon by the Arkansas
Supreme Court, thereby allowing this Court to exercise
jurisdiction in this matter. Orr v. Orr, 440 U.S. 268, 99 S.Ct.
1102, 59 L.Ed.2d 306 (1979).

In determining what is due process of law, regard must
be had to substance, not to form. Chicago, B. & Q.R. Co. v.
City of Chicago, 166 U.S. 226, 17 S.Ct. 581, 41 L.Ed. 979 (1897).

For all its consequence, "due process" has never
been, and perhaps can never be, precisely defined.
"[U]nlike some legal rules," this Court has said, due
process "is not a technical conception with a fixed
content unrelated to time, place and circumstances."
Cafeteria Workers v. McElroy, 367 U.S. 886, 895, 81 S.Ct.
1743, 1748, 6 L.Ed.2d 1230. Rather, the phrase |
expresses the requirement of "fundamental fairness," |

12

iii

a requirement whose meaning can be as opaque as its
importance is lofty. Applying the Due Process Clause
is therefore an uncertain enterprise which must
discover what "fundamental fairness" consists of in a
particular situation by first considering any relevant
precedents and then by assessing the several interests
that are at stake.

Lassiter v. Department of Social Services of Durham-County, 452
U.S. 18, 101 S.Ct. 2153, 68 L.Ed.2d 640 (1981).

With these rules in mind, how do the proceedings in
Arkansas square with them? First, the Arkansas Supreme
Court explicitly stated it was adopting the reasoning of
Grunin v. Int’l House of Pancakes, 513 F.2d 114 (8th Cir. 1975).
The evidence presented by the Petitioners showed that the
total potential judgment on usury claims alone could have
been as high as $ 27 million. The Arkansas Supreme Court
recognized Petitioners had made a “bona fide” argument
that the $605,000.00 offered in settlement was not
comparable to the potential recovery, but then stated “...we
are not deciding the merits of the usury question in their
favor ... [nJor can we proceed in our analysis with any
assumption that the class will prevail and collect all
damages claimed.” (Emphasis added.) Ballard v. Martin, 349
Ark. 564, 578, 79 S.W.3d 838, 846-47 (2002). In essence, the
Arkansas Supreme Court abdicated its reviewing role, by
doing so, discarded this first and most important element of
analysis. Some assumptions regarding the likelihood of the
class prevailing on their admittedly “bona fide” claims was
necessary in order to place a value on those claims for
purposes of comparison to the settlement offer.

The Arkansas Supreme Court then turned to the second,
subsidiary Grunin factor - the defendant's ability to pay.’
Here, the court improperly balanced the evidence elicited by

1 The Arkansas Supreme Court discussed this issue in the context of the
first factor, as well, but that discussion will be addressed by Petitioners
exclusively under the second ability-to-pay factor.

13

Petitioners in the record against Westark’s disputed claims
in its pleadings. Petitioners introduced evidence that
Westark’s ability to pay greatly exceeded the $ 605,000.00
offered while Westark introduced no evidence whatsoever that
its ability to pay was impaired. In fact, the evidence showed
that during the 90-day post-approval operations period,
Westark could expect to collect some $ 1.4 million from the |
class members. The court looked to In re Milken & Assoc.
Securities Litigation, 150 F.R.D. 46 (S.D.N.Y. 1993) for
justification that a settlement that is much smaller than the
amount sought in the complaint may be fair and reasonable |
and then said “a settlement which embraces Series EE Bonds
totaling $870,000 and forgiveness of debt after ninety days
has considerable value.” Ballard, supra at 349 Ark. at 580, 79
S.W.3d at 848. Of course, Milken and its kind deal with cases
where analysis of the first factor show that the value of the
class’s claims are worth much less than the amount sought
and confirm that the ability-to-pay factor is subsidiary to the
first factor (value of the claims versus amount offered). |
Here, the court uses the value of the savings bonds sixteen |
years hence to improperly justify the supremacy of the second
factor over the first.

Moreover, the Arkansas Supreme Court completely
- ignored any analysis of the value of other claims that were
not brought, but that were being released, as well as the
value of claims that could have been brought against
Westark’s owners and sureties _(who were also being

released without consideration) and their ability to pay.

Oe eee ees on

If the Respondents seek to justify the Settlement
Agreement on the basis that there is a limited fund, then this
Court's opinion in Ortiz v. Fibreboard Corp., 527 U.S. 815, 119
S.Ct. 2295, 144 L.Ed.2d 715 (1999) is instructive. Ortiz makes
it clear that strict proof that the fund is limited - otherwise
than by the settlement agreement itself - is required. Id. at
838-42. Failure to meet that burden of proof demonstrates
an abserice of adequate representation and requires rejection
of the proceedings below.

14

Te eye ee aE |

The defect of certification going to the most
characteristic feature of a limited fund action was the
uncritical adoption by both the District Court and the
Court of Appeals of figures [FN omitted] agreed
upon by the parties in defining the limits of the fund
and demonstrating its inadequacy. [FN omitted]
When a district court, as here, certifies for class action
settlement only, the moment of certification requires
"heightene[d] attention," Amchem, 521 U.S., at 620, 117
S.Ct. 2231, to the justifications for binding the class
members. This is so because certification of a
mandatory settlement class, however provisional
technically, effectively concludes the proceeding save
for the final fairness hearing. And, as we held in
Amchem, a fairness hearing under Rule 23(e) is no
substitute for rigorous adherence to those provisions
of the Rule "designed to protect absentees," ibid.,
among them subdivision (b)(1)(B). [FN omitted]
Thus, in an action such as this the settling parties
must present not only their agreement, but evidence
on which the district court may ascertain the limit
and the insufficiency of the fund, with support in
findings of fact following a proceeding in which the
evidence is subject to challenge, see In re Bendectin
Products Liability Litigation, 749 F.2d 300, 306 (C.A.6
1984) ("[T]he district court, as a matter of law, must
have a fact-finding inquiry on this question and
allow the opponents of class certification to present
evidence that a limited fund does not exist"); see also
In re Temple, 851 F.2d 1269, 1272 (C.A.11 1988)
("Without a finding as to the net worth of the
defendant, it is difficult to see how the fact of a
limited fund could have been established given that
all of [the defendant's] assets are potentially available
to suitors"); I re Dennis Greenman Securities Litigation,
829 F.2d 1539, 1546 (C.A.11 1987) (discussing factual
findings necessary for certification of a limited fund
class action).

15

Ortiz v. Fibreboard Corp., 527 U.S. 815, 848-50, 119 S.Ct. 2295,
2316, 144 L.Ed.2d 715 (1999).

In short, when the Arkansas Supreme Court uncritically
adopted the trial court’s assessment that Westark had only a
limited fund with which to pay claims, without evaluating at
all the ability of its owners or sureties to pay and the value of
released, but unbrought, claims against them, the process
was fundamentally flawed. It was the substance of the
proceeding, not the nominal adoption of objective standards,
that resulted in a denial of due process. Dismissal of non-
parties for clairas not brought and for no independent
consideration deserves a deeper examination and specific
findings. Girsh v. Jepson, 521 F.2d 153, 159 (3rd Cir. 1975).

2. The Arkansas Supreme Court Improperly
Shifted the Burden of Proof to Objecting Class
Members.

The Arkansas Supreme Court opinion effectively shifted
burden of proof from the Plaintiffs and Westark to the
Petitioners. The record was clear that they had utterly failed
to meet their burden with admissible proof. They provided
no evidence whatsoever of: (1) the value of the usury claim by
introducing the amount of fees collected from class members
during the class period or the number of class members;
(2) their ability to pay; (3) the value of other claims being
released that could have been, but were not, brought; (4) the
value of claims being released as to Westark’s owners and
sureties that could have been, but were not, brought; or
(5) the ability of Westark’s owners and sureties to pay.

The court excuses this lack of proof by Respondents by
balancing the evidence against Westark’s claims in its
pleadings:

Following the filing of the complaint, Martin
commenced discovery. Through one set of
interrogatories and requests for production

16

eet A meena anseeD

a

propounded by Martin, information about the
arbitration provisions in the customer contracts was
elicited. Martin did request limited information
relating to Westark's financial condition. However, it
is unclear from the record whether Martin ever
received this information.

Ballard, supra at 349 Ark. at 572, 79 S.W.3d at 842.
(Emphasis added.)

The Westark appellees dispute these figures.
They also claim that they have little cash on hand and
that operating overhead reduces the amount
available for the settlement fund. We do not consider
the disputed claim that the Westark appellees could
have paid more than $605,000 to be a persuasive
reason for overturning the settlement.

Ballard, supra at 349 Ark. at 582, 79 S.W.3d at 848-
49. (Emphasis added.)

This shifting of the burden of proof to the Petitioners
effectively changes the inquiry from one where the
proponents of the Settlement Agreement are required to
positively prove the its adequacy to one where the objecting
class members are required to prove it inadequate. This shift
denies them due process in that it puts them at odds with the
reviewing court. In other words, the objecting class
members are charged with the burden of persuading the
very fiduciary - the court - who is supposed to be looking
out for their interests and incorrectly requires them to
overcome an faulty presumption that the proposed
settlement is fair. It should be the Plaintiffs and Westark, in
this case, who carry that burden because the Plaintiffs have
arguably abandoned their adversarial posture with Westark
and no longer adequately represent the class’ interests.

17

3. The Time Period for Notice was Too Brief to
Afford Class Members Due Process.

The Respondents were ordered by the trial court to mail
notice to class members on or before May 14, 2001. Notice
was actually mailed on May 16, 2001 using U. S. Standard
Mail. The deadline for a class member to object to the
proposed Settlement Agreement was May 29, 2001. The
fairness hearing was set for June 1, 2001.

Notice to class members must be reasonably calculated
to apprise them of their rights. Eisen v. Carlisle and Jacquelin,
417 US. 156, 173, 94 S.Ct. 2140, 2150, 40 L.Ed.2d 732 (1974).
See also Mullane v. Central Hanover Bank & Trust Co., 339 U.S.
306, 70 S.Ct. 652, 94 L.Ed. 865 (1950).

While notice in this case was mailed to class members, it
was mailed using U. S. Standard Mail. That method of
mailing excludes forwarding by the Postal Service and
means that, if the class member has changed address, the
class member will not receive the Notice even if she has left
forwarding instructions with the Postal Service. Moreover,
given the brief window of time between later mailing of the
notices on May 16 and the fairness hearing on June 1, 2001,
those notices that required forwarding likely would not have
arrived until just before the time to object to the proposed
settlement expired, or even later. As to those class members,
therefore, they had either no notice whatsoever of the
proceedings or an inadequate opportunity to object and
present evidence.

The Arkansas Supreme Court recognized those problems
and dismissed them as inconsequential. The court said:

Martin, in her mailing to class members, claims
that she requested return service for undeliverable
notices at an additional cost. This was for the purpose
of forwarding the notice to transient class members,
according to Martin. Ballard and Cain reply that
nothing regarding remailing returned notices to new

18

ener eee ee en

addresses is in the record. But what the record does
support is that forwarding addresses were requested
by Martin at an added cost which presupposes this
was for the purpose of remailing. Though, a
forwarded notice may have been too late for the
June 1 fairness hearing, it certainly was timely notice
of the right to opt out of the class.

Ballard, supra at 349 Ark. at 587-88, 79 S.W.3d at
852-53. (Emphasis added.)

The court apparently considered the presence of an opt-
out provision and timely notice of that option alone to be a
cure-all for any flaws existing in the notice and settlement
agreement approval process. This is wrong. The class must
have a reasonable opportunity to develop a record and
oppose the proposed settlement and a lack of the best
practicable notice to them of that right is a denial of their
fundamental right. Girsh v. Jepson, 521 F.2d 153 (3rd Cir.
1975). If the settlement is inadequate, and their individual
claims are small, what good is an opt-out to a class member?

Furthermore, the Notice is fundamentally flawed
because it did not disclose that a class member could object
or how or when he could do so. Additionally, the Notice did
not disclose that Westark’s owners and sureties - who were
not defendants -were being released. See, e.g., Twigg v.
Sears, Roebuck & Co., 153 F.3d 1222 (11th Cir. 1998).

B. The Impact of this Decision on Future Class Action
Cases in Arkansas is Potentially Enormous.

This published opinion will affect all future class actions
in Arkansas for which settlement is sought. Given the
prospective impact of the published opinion from the
Arkansas Supreme Court if this deficiency goes uncorrected,
future ad hoc denials of due process are assured.

19

Arbitrary standards amount to no standards at all.
Discretion becomes unfettered and leaves parties and courts
‘with nothing to guide them. The due process concerns
evident in the instant case will be magnified through time
unless this Court exercises corrective action now.

II. This Court Has Never Spoken on this Issue and
Guidance is Needed.

As near as can be determined, this Court has never
explicitly stated that due process requires adherence to
certain objective standards in the exercise of a trial court's
discretion in approving a proposed class action settlement.
Nor has this Court enumerated what those standards should
be. This Court’s opinion in Amchem Products, Inc. v. Windsor,
521 U.S. 591, 117 S.Ct. 2231 (1997) comes close in discussing
23(e), but does not categorically state that due process is at
stake or that objective standards are there to gauge and limit
the discretion of the trial court.

There is some precedent for the role of a trial court in
representative actions to construe the standards for approval
of settlement agreement as requirements for effective
protection of absent claimants. Protective Committee For
Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson,
390 US. 414, 434-41, 88 S.Ct. 1157, 1168-73 (1968) involved
appellate review of settlement agreement reached in a
bankruptcy proceeding and discussed at length the
appropriate standards required by the reviewing court and
the justification for those standards. While not a “class
action” per se, bankruptcy proceedings are equitable in
nature and deal with a representative action that disposes of
the rights of absent parties.

If it please the Court, this fundamental and important
issue is important enough to warrant clarification.

20

Rha tite ttt sc ASAD So

ssid coh

CONCLUSION

For all of the above reasons, the Petitioners request this
Court to grant Certiorari and to reverse and remand the
decision of the Arkansas Supreme Court with instructions or
guidance as to how to proceed.

David G. Nixon

THE NIXON LAW FIRM

2340 Green Acres Road, Ste 12
Fayetteville, AR 72703

Tel: 479-582-0020

Fax: 479-582-0030

Counsel of Record

Richard A. Fisher, Esq. —
THE FISHER LAW FIRM
1510 Stuart Road, Ste 210
Cleveland, TN 37364-0191
Tel: 423-479-7009

Attorneys for Petitioners

s:\check cashing cases\ state actions\ martin v. westark (appeal)\certiorari,
petition2.doc

21

APPENDIX

The Appendix is in a separate volume submitted herewith.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386015_0536%3A1. Public record. Not legal advice.